To justify its recent $14.5 billion ruling against Apple, the EU claimed that Apple benefited from “a significant advantage over other businesses that are subject to the same national taxation rules.” If they had provided any evidence of a special carve-out for Apple, this might be easier to believe. Instead, the likely explanation is that the EU is stepping up its war on tax competition as part of its long-standing pursuit of harmonization of tax rates across the continent and ultimately the globe.
The European Commission says Apple owes $14.5 billion plus interest in back taxes to Ireland. What makes the ruling particularly unusual is the fact that Ireland itself disagrees. They don’t want to collect the money. They would rather continue to be a nation with an attractive corporate tax code so that they can benefit from tax competition, rather than short-shortsightedly treating companies as ATM machines.
At issue is whether Ireland granted illegal “state aid” to Apple, which is prohibited under the EU treaty. Such aid is admittedly the wrong way to do tax competition. Jurisdictions should compete through the overall tax and regulatory code, not through special carve-outs. But even where they get it wrong, sovereign nations must be free to administer their own tax codes for tax competition to exist.
The EU surely knows this, which is why their ongoing efforts to move control of tax policy away from individual jurisdictions and towards Brussels is deeply disturbing. The Apple ruling fits a pattern of seeking to eliminate tax competition on the continent, where nations like France and Germany have in the past pressured Ireland to raise its 12.5% corporate tax rate. They wrongly fear a “race to the bottom” that would leave national treasuries empty, instead of recognizing that taxpayers and politicians alike benefit from the higher economic growth induced when destructive taxes are kept low.
It is not at all clear that Apple did in fact receive special dispensation. Those facts will continue to be litigated, as both Apple and Ireland plan to appeal the ruling. They insist that the company was merely given rulings that offered clarification as to how the tax law would be applied in their case, which is both a common and desirable practice because it provides certainty. Adding uncertainty through broad retroactive tax rulings won’t just impact the U.S. companies that Europe wrongly thinks can provide their financial salvation, but it will make the continent less attractive to businesses going forward.
Ultimately, it is up the the United States to defend its businesses against these opportunistic tax grabs. The bipartisan criticism of the EU ruling is a good first start. But politicians must stop demonizing businesses to distract from their own failures to spend responsibly. The U.S. should also lead by example and end its own greedy worldwide tax system.
We’ve seen through the OECD BEPS project what happens when Washington, and in particular Congress, allows European bureaucrats to dream up global tax rules unmolested. It inevitably leads to a byzantine system of arcana designed to keep the government bureaucrats and accountants employed while squeezing the maximum amount of tax revenue possible out of the global economy. If U.S. politicians continue to sit on the sidelines, these threats will only multiply.
Unfortunately, years of politically motivated attacks on corporations have made large multinationals like Apple seem like low-risk targets. Voters are not going to take to the streets on behalf of the likes of Apple, Google, or Amazon. After pounding on and on about big business not paying its “fair share,” Washington is in an awkward place now that the EU has said “we agree” while helping themselves to the coffers of an American company. Yet if Washington doesn’t act, Apple will just be the first of many.